Helping Your 401k Participants Cope With Volatile Markets

Volatile markets have returned with a vengeance. The Dow Jones Industrial Average has fluctuated by thousands of points on recent trading days. During these times your 401k plan participants can become very nervous, and understandably so.

Plan sponsors and their investment advisors can help calm participants during these volatile markets by sharing the following:

Don’t stop contributing, unless…

Participants often contact me during times when stock markets are falling so they can confirm that “…now is a good time to stop making 401k contributions, right, Bob?” Many participants wrongly believe that rising markets are good to invest in but falling markets are not. The current situation presents a wonderful opportunity to discuss the merits of dollar-cost averaging.

However, if, during these unprecedented times, a participant or their spouse loses their job, they may wish to stop contributing until things return to normal again.

Resist the urge to sell

Many participants are pained to see the value of their accounts falling and feel the only way to stop the bleeding is to sell, before their investment falls even more. Selling, and realizing losses during times like this, is a major reason why most participants average less than half of the return of the funds they are invested in.

Reassure your participants that markets rise and fall and that they are long-term investors who should not be concerned about short-term market fluctuations.

Don’t look at your account balance

Many participants can become very upset when viewing unrealized or paper losses in their 401k accounts. Advise your participants to refrain from viewing their account balances on days in which the markets suffer large losses.

Get help if they need it

This is a good time to for participatnts to have the investment advisor’s contact information. Participants should be encouraged to contact the advisor first if they are thinking about making any sort of change to their accounts.

Stick with your plan

Fast-moving markets, either rising or falling, are not times during which major changes to saving and investment plans should be made. Emotions tend to color perceptions to a high degree during these times, leading to bad decision-making.

Ups and downs are par for the course

Volatile markets are common – especially when investing for the long term. But when these episodes occur, participants may find it difficult to sit still. Remind them that they are in it for the long haul and that they should resist the temptation to invest based on how they are feeling at that moment.

Remember that volatile markets don’t last forever

Nothing good or bad ever lasts forever. Although it may seem like this latest period of volatile markets will never end, it will likely be over sooner than most think. Riding out the storm is usually the best bet.

Although the COVID-19 crisis is unlike anything we’ve ever experienced, the advice to ride it out still applies. In short, participants should hang on, stick with their plan and contact their advisor before making any changes.

Robert C. , AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or bob@lawtonrpc.com.